Tesla Inc.'s TSLA recent price cuts stirred concerns about a huge margin impact that, in turn, is expected to hurt profitability.
What Happened: With supply chain bottlenecks dissipating, Tesla can afford to cut prices in line with battery cost declines, said Ark Invest’s Cathie Wood. This will produce the desired effect of driving demand higher while limiting the impact on profitability, she added.
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“According to Wright’s Law, battery costs drop 28% for every cumulative doubling in unit in production!” the fund manager said.
Wood cited Ark’s research that suggests that Tesla has leveraged off the consumer electronics industry, while most other automakers have not. Tesla’s batteries, therefore, are three years ahead of the competition in terms of costs for a given range and performance, she added.
Why It’s Important: Wedbush analyst Daniel Ives said all of Tesla’s recent price cuts can spur demand/deliveries by 12-15% globally this year and show that the company is going on an offensive to spur demand in a softening backdrop.
Tesla bulls have largely shrugged off margin worries, reasoning that volume gain can offset the negative impact on margins. More clarity on the margin impact will emerge when Tesla reports its financial results on Jan. 25.
Price Action: Tesla closed Friday’s session down 0.94%, at $122.40, according to Benzinga Pro data.
Read Next: 'Elon Musk, You Wiped Out $10K In Value Off My 4-Week-Old Tesla Overnight:' Livid Customers Frustrated At Missing Out On Recent Price Cuts
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